1996 (3) TMI 111 - HC - Income Tax

Summary

Issues: Taxability of pension received from the Government of Malaysia in India for the assessment year 1984-85.

Analysis:
The High Court of Kerala was tasked with determining the taxability of the pension received by an individual from the Government of Malaysia in India for the assessment year 1984-85. The court examined the provisions of article 18(3) of the agreement between the two governments, which stated that any pension paid by one contracting state to an individual may be taxed in that state. The court noted the distinction between the use of "may" and "shall" in the agreement to hold that the pension may be taxed not only in the country of residence but also in the country of source. However, the appellate authority, the Appellate Assistant Commissioner of Income-tax, Trivandrum, emphasized that pension accruing abroad is taxable in India only if it is earned in India. The authority observed that pension received in India from abroad by pensioners residing in India for past services rendered in the foreign country should not be taxed in India on a receipt basis.

Furthermore, the appellate authority found that the pension was first credited in a bank in Malaysia and then remitted to India to the pensioner. Based on this factual position, the authority concluded that the pension can be deemed to have been received abroad initially, thus exempting it from Indian tax. The Income-tax Appellate Tribunal, Cochin Bench, as the second appellate authority, supported this position and cited a previous decision where a similar pension received from the Malaysian Government was deemed non-taxable in India. The court also distinguished the case from previous decisions, emphasizing that the specific facts of the case warranted a different outcome.

Moreover, the court referenced a decision by the Madras High Court and another case involving a pensioner receiving a pension from the Malaysian Government, highlighting that if the pension is received in the foreign country and assessed there, it should not be taxable in India. The court also analyzed the provisions of section 5(1)(a) and (c) of the Income-tax Act, emphasizing that income accruing outside India is not taxable in India unless derived from a business controlled or a profession set up in India. Ultimately, the court ruled in favor of the assessee, holding that the pension received from the Government of Malaysia was not taxable in India for the assessment year in question.